Do entrepreneurs and managers earn too much?

The idea that top managers are overpaid is one of the most popular clich├ęs in modern business. But is it accurate? And what inspired this belief?

by Rainer Zitelmann
Image credit: Mohamed Hassan from Pixabay
Image credit: Mohamed Hassan from Pixabay

Many critics of social inequality are appalled by the growing disparities in income between senior managers and employees. In the UK, for example, an average CEO earns £300,312, compared to £34,943 for a median employee. So how, it seems legitimate to ask, can we justify a CEO earning 7.59 times as much as someone on the shop floor? (To be fair, UK plc is not exceptional: similar ratios exist across the EU.) 

The ‘theory of justice’, popularised by American philosopher John Rawls’ in the 1970s, suggests that remuneration should be in proportion to effort. To many people, this sounds like common sense. Scientific research proves that we perceive “performance” as the disciplined completion of a certain set of tasks within a specific time. In the real-life experience of many workers, working longer or harder usually equates to bigger pay - which they regard as fair. You might call this the ‘employee mindset’.

But does this correlation apply to entrepreneurs? What counts above all is having great business ideas. The wealthiest people in the world usually become rich because they have a unique entrepreneurial idea which millions of consumers recognise as useful. In this scenario, it is not how much work you do that is decisive, but how much your idea benefits society.

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